Clarity, Consistency and a Confusing Conversation

Have you ever had a conversation where you enter into it trying to get clarity on a particular subject and ending up at the end of the conversation with more questions than answers?

I had one of these conversations recently with a St James’s Place financial adviser but before I tell you about the conversation let me ‘set my stall out’….

Many of us in the independent advice and financial planning community are pretty disdainful of SJP.  However I believe that whilst there’s a lot about SJP I don’t like (I want to talk about one of these things in particular later on this article) there’s a lot about SJP we could potentially learn from.

SJP seem to be a very process driven business (processes which, once changed appropriately, could potentially benefit a lot of IFA and financial planning business), they have a highly effective recruitment machine and there’s no denying that they market their products and services in a powerful and effective way.  They also seem to have a decent servicing proposition.

However I do have a particular issue with SJP.  An issue that I naively thought would be dealt with by RDR.  An issue to do with the way they charge for their services.

So, let me tell you about my recent conversation.  I’ll start with my comment….

———————————————————————————————————————————-

“So, I’m curious about how St James’s place charge especially post RDR….can you explain it to me?”

“Sure.  We have access to a manufactured pension, bond and OEIC and for the remainder of need areas we can use who we want within reason”

“Okay.  So what’s the charging structure on the manufactured products?”

“On the unit trust business it’s a 5% bid offer spread with an annual charge starting at 1.5% but increasing depending on the fund selected.”

“Okay.”

“For investment bonds there’s no bid offer spread, broadly similar annual management charges but there are ‘exit penalties’ for the first 6 years starting at 6% and decreasing by 1% every year.”

Okay”

“Pensions are charged in a similar way to investment bonds with no bid offer spread and a 6 year period where the same exit penalties as bonds apply”

“Right I understand that….so I’m assuming you ask your client for a fee to complete any work product focussed or otherwise now we’re in the ‘new world’?”

“No….we normally get paid via the product.  However I believe that it’s RDR compliant due to the fact that regardless of the product recommendation we get paid 3% for manufactured products and the fact that we’ve ‘vertically integrated'”

———————————————————————————————————————-

Now it’s important to say that this conversation is based on one conversation with an SJP adviser and there have been varying reports in the press (see here and here) of how charges are incurred for SJP products.

However if we assume that the adviser I spoke to was entirely accurate and is broadly correct in relation to the charges they mentioned it raises one question..

In some parts of our profession, has anything genuinely changed post RDR?

In our practice we unashamedly charge fees for the work we do.  Regardless of RDR, we just feel it’s the right thing to do for our clients.

I’m also not concerned about the ‘competition’ from SJP.

SJP will continue to attract certain clients and advisers under their model and our business (on a far smaller scale) continue to attract the right type of clients and adviser for our business.

My concern is that I look at their charging model and it doesn’t seem to be fundamentally different to an old school bancassurance model.  Therefore I’m not convinced that model will every truly deliver positive outcomes for SJP’s clients over the longer term which could lead to potential damage to our reputation as a profession.

I’ve also got a bunch of different issues with the fact that whilst you can argue that the income paid to the adviser is the same and therefore displays no bias I’d argue that potentially the one recommended may not be the best  solution for the client but the one easier to explain. You could argue that this might the bond may seem superficially attractive to SJP advisers and clients due to the charges are deferred as opposed to up front.

However let me ask you some questions…

Do you actually think the SJP model is RDR compliant?  If so why? If not, why do you think that the regulators allow this proposition to continue?

What do you think the positives and negatives are when it comes to SJP’s proposition?

and

I don’t believe that ‘vertical integration’ and consistent charging mean a proposition complies with RDR.  However it seems that both the regulator and SJP disagree…what do you think?

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14 thoughts on “Clarity, Consistency and a Confusing Conversation

  • Whether you like it or not, SJP have been pretty open about how they operate. Plenty more firms operate in a similar way or with other, more murky stuff in the background, and are a lot less open about it than SJP have been.

    Reply
    • Interesting comment Phil,

      Being transparent on the charging structure doesn’t mean that costs are not being hidden.

      Whilst I’m not advocating SJP disclosing every single expense within their business to meet disclosure requirements I am suggesting that by applying a exit penalty and no up front charge isn’t particularly a transparent way of doing business post RDR.

      However I absolutely agree that they are open about how they operate and there are more murky entities out there…..however In my opinion that doesn’t mean questions shouldn’t be asked about the veracity of how SJP operate.

      It just means we should also be asking how the more murky schemes operate too!

      Thanks as always for your comment.

      Reply
  • Whether or not better outcomes will be achieved, the model seems to work and many people appear to favour it.

    I expect their clients favour a “bundled” price as it can be easier to understand and for a certain mindset of individual this is a good thing.

    Our preference and probably yours too Chris is to break down all costs so your client knows exactly what they are paying for and when.

    This can be a bit more of a challenge and potentially harder work for a client to understand, but we like that and so do our clients it would seem.

    Reply
    • Thanks Paul,

      However (and maybe I’m being a bit too idealistic) our role as financial planners is exactly that to provide better outcomes (and clarity) for our clients.

      I’m just not sure that SJP do this.

      However I do appreciate that for some clients (and advisers) their approach works and works well.

      Reply
  • I am never sure what the obsession is with SJP in this industry.

    If like me you do this job to earn your living then you can choose to either work for your clients and get paid by them or you work for a firm and get paid by the firm.

    I dont for one second think that the SJP advisers determine the level or style of their remuneration and simply have to get on and do the best job that they can with the tools they are given.

    As IFA’s we have the freedom to decide how much we charge and how we want to be paid. We have access to the entire marketplace and the ability to use a whole range of platforms and tools to do our job.

    I suspect the majority of so called independent advisers continue to rely on products and providers to facilitate their income through adviser charging so where is the difference.

    I would guess that SJP internal procedures are just as onerous as FCA regulations although they do have the benefit of not needing individual PI insurance.

    We should celebrate the difference and take what we can from what is a very professional selling organisation and improve what we do and how we do it.

    Our is a very simple job and yet we do our utmost to make it seem complicated.

    Reply
    • Thanks Phil,

      When it comes to learning from SJP I agree that we should. There are aspects of their business I admire greatly and feel we should as a wider community learn from.

      I’m also under no illusion that SJP has procedures which are pretty onerous for the individual advisers under the SJP umbrella.

      However it doesn’t change the fact that we should ask questions on whether their charging structure and it’s fairness…does it?

      Reply
  • Hi Chris,

    My own view is that there is still a huge amount of change still needed in the ” IFA ” community before we start to concern ourselves with SJP or HL etc.

    The current stats show that the majority of adviser income is still coming via products and product providers, – aka, adviser charging.

    This process, which whatever people say, is just commission by another name and is the key thing which is attracting the attention of the FCA re, outcomes of the RDR..

    The industry has become restricted by limiting itself to products and providers which facilitate adviser charging and yet when asked most say they are remaining independent.

    Have you actually seen some of the provider agreements and Network Agreements which clients are signing to agree to adviser charging. Just another mess waiting to happen !

    By the way which bit of current IFA practice would you advocate we learn from ? I hope it is not the favoured 3 + 1/2 being used by many as a charging structure through product facilitated adviser charging.

    Lets get our own house in order and start doing what it says on our tin before we criticise others. .

    Reply
  • Hi Chris,

    My own view is that there is still a huge amount of change still needed in the ” IFA ” community before we start to concern ourselves with SJP or HL etc.

    The current stats show that the majority of adviser income is still coming via products and product providers, – aka, adviser charging.

    This process, which whatever people say, is just commission by another name and is the key thing which is attracting the attention of the FCA re, outcomes of the RDR..

    The industry has become restricted by limiting itself to products and providers which facilitate adviser charging and yet when asked most say they are remaining independent.

    Have you actually seen some of the provider agreements and Network Agreements which clients are signing to agree to adviser charging. Just another mess waiting to happen !

    By the way which bit of current IFA practice would you advocate we learn from ? I hope it is not the favoured 3 + 1/2 being used by many as a charging structure through product facilitated adviser charging.

    Lets get our own house in order and start doing what it says on our tin before we criticise others. .

    Reply
  • I am never sure what the obsession is with SJP in this industry.

    If like me you do this job to earn your living then you can choose to either work for your clients and get paid by them or you work for a firm and get paid by the firm.

    I dont for one second think that the SJP advisers determine the level or style of their remuneration and simply have to get on and do the best job that they can with the tools they are given.

    As IFA’s we have the freedom to decide how much we charge and how we want to be paid. We have access to the entire marketplace and the ability to use a whole range of platforms and tools to do our job.

    I suspect the majority of so called independent advisers continue to rely on products and providers to facilitate their income through adviser charging so where is the difference.

    I would guess that SJP internal procedures are just as onerous as FCA regulations although they do have the benefit of not needing individual PI insurance.

    We should celebrate the difference and take what we can from what is a very professional selling organisation and improve what we do and how we do it.

    Our is a very simple job and yet we do our utmost to make it seem complicated.

    Reply
    • Thanks Phil,

      When it comes to learning from SJP I agree that we should. There are aspects of their business I admire greatly and feel we should as a wider community learn from.

      I’m also under no illusion that SJP has procedures which are pretty onerous for the individual advisers under the SJP umbrella.

      However it doesn’t change the fact that we should ask questions on whether their charging structure and it’s fairness…does it?

      Reply
  • Whether you like it or not, SJP have been pretty open about how they operate. Plenty more firms operate in a similar way or with other, more murky stuff in the background, and are a lot less open about it than SJP have been.

    Reply
    • Interesting comment Phil,

      Being transparent on the charging structure doesn’t mean that costs are not being hidden.

      Whilst I’m not advocating SJP disclosing every single expense within their business to meet disclosure requirements I am suggesting that by applying a exit penalty and no up front charge isn’t particularly a transparent way of doing business post RDR.

      However I absolutely agree that they are open about how they operate and there are more murky entities out there…..however In my opinion that doesn’t mean questions shouldn’t be asked about the veracity of how SJP operate.

      It just means we should also be asking how the more murky schemes operate too!

      Thanks as always for your comment.

      Reply
  • Whether or not better outcomes will be achieved, the model seems to work and many people appear to favour it.

    I expect their clients favour a “bundled” price as it can be easier to understand and for a certain mindset of individual this is a good thing.

    Our preference and probably yours too Chris is to break down all costs so your client knows exactly what they are paying for and when.

    This can be a bit more of a challenge and potentially harder work for a client to understand, but we like that and so do our clients it would seem.

    Reply
    • Thanks Paul,

      However (and maybe I’m being a bit too idealistic) our role as financial planners is exactly that to provide better outcomes (and clarity) for our clients.

      I’m just not sure that SJP do this.

      However I do appreciate that for some clients (and advisers) their approach works and works well.

      Reply

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